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In re Application of JAMES F. BELL, JR., ET AL. (TRANSFERORS) AND GAMBLE-SKOGMO, INC. (TRANSFEREE) For Transfer of Control of Areawide Communications, Inc., Licensee of Stations KRSI-AM and FM, St. Louis Park, Minn.; WEBC, Duluth, Minn.; and WNAX, Yankton, S. Dak., Through Transfer of Control of the Parent Company, Red Owl Stores, Inc. In re Applications for Renewal of Licenses of All the Above Stations and Licenses of Subsidiary Stations, If Any


Files Nos. BTC-5402, BR-652, BR-3756, BR-620, BRH-1379, BRSCA-386




12 F.C.C.2d 170




March 27, 1968 Adopted





 [*170]  1.  We have before us for consideration the following applications involving Areawide Communications, Inc., n1 licensee of stations WNAX, Yankton, S. Dak.; KRSI-AM and FM, St. Louis Park, Minn.; and WEBC, Duluth, Minn.:

n1 On July 21, 1967, grant of a pro fraoma assignment application caused Radio Suburbia, Inc., then a subsidiary of Red Owl Stores, Inc., to be the licensee of all the stations enumerated above.  On Oct. 4, 1967, the Commission granted an application (BML-2226) for change of name from Radio Suburbia, Inc., to Areawide Communications, Inc. Although the application for transfer of control (BTC-5402) was filed in the name of Radio Suburbia, Inc., since the Commission granted a change in name of the corporate licensee to Areawide Communications, Inc., we take cognizance of that change, and for purposes of this Order Areawide Communications, Inc., will be treated as the licensee of the Red Owl stations.

(a) An application for transfer of control of Areawide Communications, Inc., licensee of the above stations, from James F. Bell, Jr.,  et al. to Gamble-Skogmo, Inc., through transfer of control of the parent company of Areawide, Red Owl Stores, Inc. (BTC-4402);

(b) Applications for renewal of licenses of all the above stations.

2.  As will be fully explained, the Commission is here faced with two unauthorized transfers of control of Areawide Communications, Inc. -- one de facto and one de jure.  The application that now seeks Commission authorization for these unauthorized transfers (BTC-5402) discloses that a grant now would require waiver of the Commission's 3-year rule (sec. 1.597) n2 and a finding that a grant to the transferee would be in the public interest.  On the basis of the information before us, we cannot make a finding that the public interest would  [*171]  be served by an unconditional grant of the application.  Therefore, we have two alternatives: (1) Under the Communications Act, designate the above-mentioned applications (the renewal applications included) for hearing; (2) because of mitigating circumstances which will be apparent from the following discussion (a) impose a Notice of Apparent Liability in the sum of $10,000 and (b) grant the application for transfer of control of the licensee on condition that Gamble-Skogmo divest itself of its broadcast interest within 6 months from the date of this Order and, during that period, hold the aforementioned applications for renewal of licenses of the stations in abeyance.  The Commission is of the view that it should adopt the latter course. 

n2 Two of the stations were acquired within 3 years of the filing of this application: WNAX in Sept. 1, 1965, and WEBC in February of 1966.

3.  Application BTC-5402 discloses that at all times prior to March 14, 1967, de facto control of Areawide Communications, Inc., wholly owned subsidiary of Red Owl Stores, Inc., n3 was in one James F. Bell, Jr., who, through stock owned by him and associates, controlled 17 percent of Red Owl.  On March 14, 1967, Bell and Gamble-Skogmo, Inc., n4 signed an agreement under which Bell and other interested Red Owl stockholders could exchange their Red Owl stock for Gamble-Skogmo's 7 percent "Subordinated Income Notes" at a rate of $19 worth of notes for each share of Red Owl.  The agreement further provided that any tender of stock made to Gamble was irrevocable and, in turn, that a tender to Gamble-Skogmo had to be accepted. 

n3 Red Owl Stores, Inc., is basically a publicly held midwest grocery chain.

n4 Gamble-Skogmo, Inc., another chain, is a consumer goods merchandiser.

4.  The application further reveals that on or about April 13, 1967, a majority of the Red Owl Board of Directors was replaced by directors named by Gamble-Skogmo.  Invitations for tender of stock were sent out by Gamble on June 23, 1967, and on or about July 10, 1967, the exchange of stocks for notes was completed and Gamble-Skogmo acquired 78.4 percent of the Red Owl stock as of the latter date.

5.  The application for transfer of control of Areawide Communications, Inc. (BTC-5402), through transfer of control of Red Owl, was filed with the Commission on July 28, 1967.  This is one of the applications now before us.

6.  In mitigation, it was pointed out that the circumstances do not indicate trafficking in broadcast licenses.  It was also pointed out that the applicants were not aware that the purchase of stock, as here, required the prior approval of the Commission until June 27, 1967, when Washington counsel for Red Owl, being first informed of the facts, advised Red Owl and Gamble of such requirement.  The applicants further averred that on July 14, 1967, the Red Owl board adopted a resolution which provided that, pending Commission approval, Red Owl, then controlled by Gamble-Skogmo, would not alter the existing policies of the broadcast subsidiaries or vote the licensee's stock, which was to be deposited in escrow with a bank until final Commission action.

7.  We have carefully reviewed the application and the applicant's statements and find two clear unauthorized transfers of control occurred at Areawide Communications, Inc. -- an unauthorized transfer of de facto control on April 13, 1967, and unauthorized transfer of de jure control on or about July 10, 1967.  While the arguments in  [*172]  mitigation somewhat soften the glaring violations of section 310(b) of the Communications Act of 1934, as amended, sufficiently to persuade the Commission not to designate all of the applications for hearing, the arguments are not completely persuasive.  Red Owl, for one thing, has been the parent company of a Commission licensee since 1961 (a subsidiary acquired stations KRSI and KRSI-FM in 1961) and is, therefore, chargeable with knowledge of the Communications Act of 1934, as amended, including section 310(b) thereof.  Moreover, five Red Owl officers and directors served in similar capacities with the licensee corporation, a subsidiary.  Red Owl had communications counsel which admittedly it did not consult until after the agreement with Gamble-Skogmo was signed, after the unauthorized transfer of control took place, and after the offer for tender of stock.

8.  Bamble-Skogmo, in turn, a large publicly held corporation, by the very fact of its being traded on the New York Stock Exchange and its other activities must have had experience with the operation of regulatory agencies.  It would be difficult for the transferee to argue, and it does not, that after the agreement was signed it was unaware that Red Owl controlled broadcast properties.  The prospectus itself mentions that.

9.  While we have no reason to believe that the parties to the application deliberately flouted the requirements of section 310(b) of the Communications Act to avoid delaying consummation of the stock agreement, we do believe that this conduct reflects a total lack of interest in, and concern for, the broadcast assets included in the agreement.  In this regard, the broadcast income was a minor part of Red Owl's consolidated income figure, and would be a minuscule part of a merged Gamble-Skogmo-Red Owl.  This is clear from the balance sheets contained in the prospectus, and must have contributed to the lack of concern and interest in the broadcast properties.  n5

n5 On Mar. 18, 1968, Gamble-Skogmo, Inc., filed a letter with the Commission.  In pertinent part that letter advised as follows: * * * the difference in the operation of broadcast stations from the management of a general mercantile and food business indicates that we should probably not engage in both activities * * * following Commission approval conditioned upon the sale of stations, it is my intent to see to it that prompt steps are taken to dispose of the stations, subject, of course, to prior Commission consent to their assignment."

10.  This Commission is not the regulatory agency to determine whether a merger between the Red Owl Stores, Inc., and Gamble-Skogmo, Inc., was in the public interest, but it is the regulatory agency to state that section 310(b) of the Communications Act must not be violated when mergers, as here, are contemplated.

11.  Based on the above facts, we cannot make a finding that an unconditional grant of the transfer application would be in the public interest.  There has been a willful or repeated violation of section 310(b) or both, and the conduct of the parties has manifested a lack of interest in the broadcast properties.

12.  In view of the foregoing, It is ordered, That the application for transfer of control of Areawide Communications, Inc., to Gamble-Skogmo, Inc. (BTC-5402), Is granted on the condition that the said Gamble-Skogmo, Inc., divest itself of any interests it may have in Areawide Communications, Inc., within 6 months from the date of this Order.

 [*173]  13.  It is further ordered, That the applications for renewal of licenses of stations WNAX, KRSI-AM, KRSI-FM, and WEBC be held in abeyance until this condition is carried out.

14.  In addition, on the basis of the information now before us, we conclude that there has been a willful or repeated failure on the part of Areawide Communications, Inc., licensee herein, to observe the provisions of the act mentioned, section 310(b).

15.  Accordingly, pursuant to section 503(b) of the Communications Act, the Order constitutes a Notice of Appearent Liability to Areawide Communications, Inc., that it has Incurred an apparent liability of $10,000 for willfully or repeatedly failing to observe the provisions of section 310(b) of the Communications Act.  Under the statute,  Areawide Communications, Inc., has the following alternatives:

(1) It may pay the sum of $10,000 by mailing a check to the Commission, payable to the Treasurer of the United States.

(2) Within 30 days of the receipt of this Notice of Apparent Liability, Areawide Communications, Inc., may file a statement in writing as to why it should not be held liable.  Any such statement should be filed in triplicate and should contain complete details concerning the allegations made, any justifications for the violations involved, and any other information which it desires to bring to the Communication's attention.  Statements of circumstances should be supported by copies of relevant documents where available.  After review of any such response, the Commission will determine whether the facts alleged are sufficient to relieve Areawide of liability.  If the Commission determines the facts indicate that Areawide is liable, the Commission will issue an Order of Forfeiture.

(3) If Areawide Communications, Inc., does not desire to file a statement of non-liability but regards the amount of the forfeiture as inappropriate, it may submit a statement within 30 days of the date of receipt of this Order showing why the forfeiture should be of a lesser amount.

(4) If no statement at all is filed within 30 days from the date of receipt of this Order, the Commission will enter an Order of Forfeiture in the amount of $10,000.








(In re Application of James F. Bell, Jr., and Gamble-Skogmo, Inc., for Transfer of Control and Renewal of Licenses) (Enforcement of Transfer Rules)

In this case a majority of my colleagues have approved a transfer transaction involving control over four broadcast station licenses which the Commission acknowledges constitutes "two unauthorized transfers of control * * * one de facto and one de jure." These transfers were presented to us as an unauthorized fait accompli -- not, as the law requires, as a proposal which could only be realized after Commission finding that the transaction would serve the public interest.  The transaction is not set aside, the transferee is permitted to sell once again, and the license renewals are "held in abeyance." I dissent.

There is no reason to believe that counsel for the parties to this transaction, both of which are large corporations whose stock is traded on the New York Stock Exchange, were ignorant of section 310(b)  [*174]  of the Communications Act, or its requirement that station transfers must receive advance approval by this Commission.  It is apparent that time was of the essence in seeing this deal through.  Applying for FCC permission in accordance with law would have caused inconvenient delay and some additional cost.  The parties have apparently made a deliberate decision that it would be quicker and cheaper (even with a $10,000 forfeiture) to ignore the law.

By refusing to declare forfeit the licenses of the stations involved, my colleagues have, in effect, rewarded the parties for their guile.

As a matter of form, the Commission has not let the parties off scot-free.  But the sanctions it has imposed are ineffectual.  They do not really penalize the corporations involved in this case.  They will surely not encourage the communications bar to advise their clients to respect the commands of Congress or of our own regulations in the future.

The course chosen by the majority in this case is to impose a fine ("forfeiture") of $10,000 on the transferor and to require that the transferee dispose of its newly acquired licenses within 6 months.  From the transferor's point of view, this fine was a small price to pay for seeing its merger through without the risks of waiting out the FCC's decision process.  For this was a multimillion dollar deal.  The overall value of the stock which changed hands as consideration for this transaction was $22,794,528.

From the point of view of the transferee, the Communication's "sanction" -- a condition in the grant that the licenses be sold within 6 months -- is clearly no more than window dressing.  The transferee has made it clear that its interest in acquiring the conglomerate corporation of which the licensee-subsidiary was but a small part did not include an interest in owning an operating a chain of broadcast stations.  Its own definition of its interests do now, and did from the outset, contemplate an early divestment of the transferee's broadcast interests in any event.  (Only last week Gamble-Skogmo shared with us their revelation that "the difference in the operation of broadcast stations from the management of a general mercantile and food business indicate that we should probably not engage in both activities. * * *")

A more proper response to a serious and deliberate act of unlawfulness such as this would be to declare these licenses forfeit.  If we took such action, the transferor would realize his stated wish to rid itself of the burden of operating its four broadcast outlets.  It would simply have to make its exist from the broadcast business without getting paid for it so handsomely.  The overall transaction would, of course, have to be renegotiated, as the value of the transferor's assets without its radio stations would be something less than the $22 million realized on the original sale.

If the FCC expects private parties subject to its jurisdiction to take seriously the laws it is charged by Congress to administer and enforce, then the FCC will have to show that it takes those laws seriously itself.  Today I am afraid that we have acquiesced in a deliberate evasion of those laws.  The result can only be more such evasions in the future.

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